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32 Responses to “The 2012 Federal Budget”

Of course, sweeping statements like this make the EXTREMELY controversial assumption that a balanced budget is a worthwhile goal, especially at this juncture of recovery from massive private sector debt deleveraging.

I’d enjoy seeing a well-reasoned case arguing for a balanced budget (particularly within the context of current conditions). But I’m not holding my breath – have not seen one to date.

This is great information as long as it is viewed in the proper context. Similar to taking off on a long sea voyage without knowing whether the earth is round or flat. One must have at least a basic understanding of fiscal and monetary policy with regards to trade deficits, an expanding US population, and the role of fiscal/monetary policy to keep enough dollars in circulation to allow maximum commerce/investment to take place.

In other words, since the end of the barter system of commerce, the money supply must expand as the population expands (for example). Taxes (by itself) has never been, and will never be, the only source of revenue for a growing sovereign nation with it’s own non-convertable fiat currency. There is a lot more to the story than compairing outlays to receipts. The United States is a currency issuer… not a currency user (like Greece, for example).

Nope. This highlights the fact that the debt is neither a tax issue nor spending centered issue.
It is a growth issue. We shipped all of our growth offshore and the Bill Clinton solution on debts “to simply grow the economy” has been sabotaged by our own consumer spending.

In order for this graphic to be complete it needs a third chart. One that plots GDP growth, corporate earnings and wage growth vs. the part of Chinese GDP that comes directly from exports to the U.S.

Have to take some exception to your statement that, “The graph at right shows that the Great Recession caused outlays to fall”. A closer look at the graph shows that during the recession spending increased by about 5% of GDP. And that it has fallen about 2% of GDP since the recession ended.

Good info but poor presentation. First of all there should be 3 separate categories. The income and outlays for Social security should be separated out since it has its own trust fund and dedicated taxing and outlay. The same is true for the part of medicare/medicaid that is paid by its dedicated taxes. Then the rest of the budget should be contrasted by the income from the income and corporate taxes that are supposed to cover those expenses. When you fail to separate these things out people get the impression that medicare/medicaid and social security is a big part of the problem – they are not.

How about replacing the “tax” system with a “fee” system? For example, we already pay a payroll tax that goes exclusively to SS and Medicare. Similarly, we could have a “Defense Fee”, “Discretionary Fee”, and “Interest on Debt” fee. I worked in Germany for a bit and recall they had a separate tax line for welfare.

That way we can make a 1-to-1 comparison of revenues and outlays for each department individually to see what is over- or under-funded. Politically, the electorate would then have a better idea of what they’re paying for, instead of the nebulous black hole we all though money into once a year.

It is a nice illustration of how recessions are causing huge drops in revenues and huge increases in outlays. After the recession is over you get a slow reversion of both towards the mean – unless you do something really stupid like huge tax-cuts not covered by accompanying cuts in outlays.

Outlays increased as a percentage of GDP during the Great Recession, at least in part because of the reduction in the GDP. They have been declining sharply since the end of the recession, probably as much to do with the reduction of Iraq/Afghanistan costs over the past couple of years as anything else.

However, revenues are not even close to where they were prior to the recession. the graph makes it clear that the Bush tax cuts have never come close to their promise of paying for themselves in increased economic activity.

I assume much of the reduction in revenue is due to the failure of most incomes to keep up with GDP growth so both the Social Insurance and Income Tax revenues are down while the Social Security and Medicare/Medicaid costs are rising.

BTW – do tax credits/subsidies like energy credits, agricultural subsidies show up as revenue or spending in this graph? Even Grover Norquist views those as government spending through the tax code.

HowardA good point: the recession initially resulted in a larger increase in outlays than it did a decrease in revenue. The dedicated stimulus packages were one-time events, soon phased out. The outlays for unemployment insurance, food stamps, and other countercyclical programs have taken more time to come down.

DeDude, that might be messy, since part of the S.S. revenue comes from “Other” on the expense side (Treasury paying interest on Trust Fund certificates).

Bottom line: most of the deficit is cyclical, and it will shrink as the economy recovers. The real structural dilemma (Medicare/Medicaid costs) doesn’t arrive for another 6-8 years.

I might suggest that the left hand bar chart be revised to contain the contra-revenue expense of corporate welfare such as oil subsidies, big Agra programs, and off shore money sheltering. Then when you look at the ration of corporate to individual to corporate tax revenue you might get a feel for where the real tax burden is being placed. It’s funny because no one ever looks at the cost of the revenue avoided by useless subsidies to already very profitable industries (ie: Exxon, Con Agra, GE, Apple…..) as related to their Tax revenue contribution.

Since each of the trust fund entities have their own accounting with tax revenue, interest revenue and outlays it should not be that hard to do separate accounting. The interest revenue would then be accounted as a part of the expense item called “interest” on the real (discretionary) government budget. As done now they make the social insurance revenue look much smaller and falsely making the “problems” of those program look much bigger than they really are. At the same time their “net interest” figure is to small as it ignore the payments of interest to the trust funds. The interest that is of consequence to the debate is the total amount of money spend to finance the total debt load of the government.

I wonder how much of the precipitous decline in revenue that began in 2000 is due to the loss of jobs in the dot-com recession, and how much of that trend is due to the Bush tax cuts, and how much of it was due to a boatload of corporate tax loopholes and offshore movement of corporations of trillions of dollars …

Ray Dalio said we could cut $4T in 10 years by cutting spending by 3% and increasing taxes by 3%. Can we all pay 3% more, spending 3% less? That would be too simple. BR probably had this video up last year, Dalio on Charlie Rose, http://bit.ly/V5sYvb

@ DeDude: I hear what you’re saying, but I’m guessing that the graphs already include Trust Fund interest income in Social Security’s “sources of financing,” since this is the only way to make S.S. revenues greater than expenses (non-interest revenue is currently about 50 billion less than outlays). I’m assuming the Trust Fund income is offset as an expense in the left-hand column, maybe under “Other?”

1) How government can work collaboratively (1992-2000) to achieve sane, sensible fiscal policy. It resulted in reforms to “entitlement” programs, while creating a budget surplus.

2) And how government can divorce itself from reality (2001-2009) to achieve insane, nonsensical fiscal policy. It resulted in huge expansions of “entitlement” programs, while creating enormous budget deficits.

These are objective, factual and rational statements. Yet even in this over-simplification, I can’t help but feel dumbfounded by the utter idiocy displayed by those who continue to scream for more “tax cuts”, “strong defense” and “deficit reduction” without a scintilla of insight into the incongruence of their stated position.

It’s as if a sizable minority of Americans have become hooked on bath salts:

I suspect as the economy accelerates in 2013 and 2014 as debt servicing decreases, this to tighten substancially. That means the so called “deficit” problems are over in the short run and remain a long run problem.

My guess the 2013 projections will be surprisingly downward revised and 2014 as well.

I find using just the official Defense budget as being misleading in what is the total amount of money being spent on national security.

If you add on the various budgets for intelligence gathering, homeland security, that part of foreign aid which is directly military oriented, and various other somewhat buried expenditures – and not counting the cost of veteran programs, military pensions – you get a figure close to $950 billion; around 25% of total spending. Throw in everything that is related to security, and the total climbs up to the $1.2 trillion dollar level.

Whether that is appropriate or not is another matter, but we should understand more precisely how much we all spend on national security…

If you add on the various budgets for intelligence gathering, homeland security, that part of foreign aid which is directly military oriented, and various other somewhat buried expenditures – and not counting the cost of veteran programs, military pensions – you get a figure close to $950 billion; around 25% of total spending. Throw in everything that is related to security, and the total climbs up to the $1.2 trillion dollar level.

——

The numbers below are from the proposed 2013 budget (http://goo.gl/CUQWt). The five programs listed have proposed costs of $765 billion, out of a total proposed budget of $1,261 billion for discretionary spending. That is, they represent a little over 60 percent of the total.

DEPARTMENT OF DEFENSE
Provides $525.4 billion in discretionary funding for the base Department of Defense budget,
a decrease of 1 percent, or $5.1 billion, below the 2012 enacted level. This will provide the
necessary resources to implement the President’s new defense strategy, keep our military the
finest in the world by investing in priorities, and help achieve $486.9 billion in savings by 2021.

NATIONAL INTELLIGENCE PROGRAM
Provides $52.6 billion in discretionary funding. This funding supports our national security
goals and reflects a deliberative process to focus funding on the most critical capabilities,
curtail personnel growth, and invest in more efficient information technology solutions.

DEPARTMENT OF STATE AND OTHER INTERNATIONAL PROGRAMS
Provides $51.6 billion in discretionary funding for the Department of State and U.S. Agency for International Development (USAID), an increase of 1.6 percent, or $0.8 billion over the 2012 enacted level when including Overseas Contingency Operations (OCO) resources

Thanks James, and if you add the 64 Billion for the VA, the total gets to be 829 billion or 66% of discretionary spending on the war and security machine. The problem with fixing the deficit by cutting government is that the only place we have any overblown spending that could be cut and make any real difference, is in the exact areas where the GOP do not want to cut. That is also why they are refusing to give us any specifics as to where they want to cut spending. Also the reason they are trying to pretend that the deficit problem is due to giving people the social security and medicare/medicaid benefits that they have paid for their whole life.

The joker in the deck that hardly anybody wants to address is the fact that if the Fed doesn’t monetize and interest rates are allowed to rise to a “market rate” whatever the hell that is, we have enormous cash flow problems.

As an aside let the sequester happen and the military budget get axed but good (my fondest hope) and just watch elected Democrats in New York, New Jersey, Pennsylvania, Ohio and especially Virginia squeal like the little pigs they are deep down inside.

I’m not stupid, but I just can’t understand the US budget in the way that it is presented. I wish there were better charts, graphs, and itemized lists of what the money is really being spent on. I’ve followed Barry’s posts on this subject, I’ve spent a couple nights previously trying to break out revenues and expenditures, but I’m just baffled. After doing this, if I can’t understand it, probably less than a couple percent of Americans can actually understand it. Which means the political spinning and political BS slogans are all Americans understand of this subject, leaving them to believe whatever their in-place confirmation biases lead them to believe.

As DeDude, SecondLook, James Cameron, and others have said, I would love if the graphs would show Social Security expenditures matched to Social Security taxes, and Medicare expenditures matched to the Medicare Payroll tax and Part B payments. And then, graphs to separate everything else out from this. On the Defense budget, make it a real defense and security budget, adding in the categories that James Cameron detailed, plus the 139 billion for the VA (per OMB 2013 budget) to clearly show the $1.2 trillion on defense and security. Break out the other lump sum categories into more detail per agency.

I wish there was a good blog doing basic explanation of the US budget, based on analytical numbers, instead of just on political spin. Similar to Barry’s analytical blog on financial stuff, ThinkProgress on climate change science, Nate Silver’s on real political numbers, …

Thanks, James, for the pointer to the current President Obama/OMB budget for 2013. The agency breakdowns of the budget in the second half of the document seem to be the easiest to understand numbers on this subject, but it’s still too hard to comprehend:

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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